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Home Remodeling Contract Types

Two Common Home Remodeling Contract Types used
by Home Builders

By Mark J. Donovan

When soliciting home remodeling
contracts on a new home construction project there is one home remodeling
contract type you should avoid at all costs, the Time and Materials
contract. A Time and Materials contract is a type of home construction
contract that puts the homeowner at peril of getting soaked in unanticipated
costs and delays. Whenever possible, demand the more common and less
dangerous home remodeling contract type referred to as a Fixed Price
contract.

Time and Material Home Remodeling
Contract Type

A Time and Materials contract
basically is a contractor bid where you pay the contractor, and his
subcontractors, by the hour and for the materials used. For many homeowners,
this home remodeling contract type sounds attractive as they believe it can
minimize the contractor’s time on the job and thus save them money.
Unfortunately, by paying a contractor on an hourly rate you leave yourself open
to excess hours charged for either slow or nonexistent work.

In addition, you also leave yourself
open to fluctuations in material cost increases due to market conditions and
excess material purchases. Also, if unforeseen items crop up in the project you
will bear all of the additional costs. By accepting a Time and Materials
contract you have effectively given the contractor an open checkbook.

There are some cases, however,
when a Time and Materials home remodeling contract may be appropriate. For
example, if there are unforeseen variables or conditions in the home
construction project that prevent the contractor from being able to fully
and accurately cost out the project. Unforeseen variables or conditions
could include such things as using new industry building materials or
building methods that he is unfamiliar with. They also could include the
possibility of running into ledge when attempting to construct the home’s
foundation, for example.

Photo by Mark Donovan

The contractor may have no other
choice in these situations but to offer you a Time and Materials contract bid,
or at least on a portion of the bid.

To avoid Time and Material contracts
the homeowner should attempt to make sure there are no issues associated with
the home construction plans that prevent the contractor from using a fixed price
quote.

Also, the homeowner should obtain multiple contractor bids
to see if other contractors suggest Time and Material contracts for their
home construction project.

If there is no choice but to accept a
Time and Material contract make sure it is limited to the specific part of the
home construction project that cannot be fully specified. In addition, require
the contractor to include “not to exceed” dollar figures for both labor and
material costs, and demand weekly hour and dollar itemized reports. If the
contractor refuses to include these items in the contract, find another
contractor.

Fixed Price Home Remodeling
Contract Type

The fixed price quote is the more
common home remodeling contract type, and it is what you should expect and
demand from home remodeling contractors. A fixed price home remodeling contract
type is written such that you know exactly how much the project is going to cost
you both in labor and material. There are no loose ends in a fixed price quote,
unless you accept contractor allowances, which you should not.

A fixed price quote also suggests the
contractor may know more about his business simply due to the fact that he is
willing to sign a contract that commits him to completing your project for a set
dollar amount.

No matter which home remodeling
contract type you go with, make sure it includes a payment schedule that
incentivizes the contractor to complete the work as quickly as possible. In
addition, make sure the contract includes warranties and a schedule with start
and complete dates for every phase of the project. Finally, make sure there is
language in the home remodeling contract that protects you from subcontractor
liens and how to deal with change orders.

For a more comprehensive new home construction
checklist, see my
New Home Construction Bid Sheet. The New Home Construction Bid
Sheet provides a request for quote checklist section that you can provide to
prospective building contractors. It also includes a comprehensive new home
construction cost breakdown table, in Microsoft Excel format, that allows the
contractor to include his projected new home construction costs for every phase
of the project.

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